Business Structures in India

Introduction

There are various kinds of business structures prevailing in India. Choosing a business structure is one of the most important decisions taken by entrepreneurs. A business can’t be successful only with a great idea and investment. A successful business also depends on the type of structure they are using. There are several business structures prevailing in India, some of them are; sole proprietor, partnership firm, one person company, private limited company, public limited company. These are explained in the article mentioned below along with their features, merits, and demerits.

Sole proprietorship

Sole Proprietorship is one of the oldest forms of business structure in India. This type of structure is owned and controlled by a single man, therefore it is also known as a one man army. It is basically suited for those businesses which are small in size or have limited investment. The liability of the sole proprietor is limited to the extent of capital contributed by him. As it is run by a single owner, therefore all the profit and loss is shared by that single person only. All the assets and property of the business is owned by the owner himself.

Features

Sole proprietorship means a single owner.

The amount of profit is owned by the owner as well as the loss is also borne by him only.

The liability of the owner of the sole proprietorship is limited.

It doesn’t have any legal formalities as compared to Partnership or Company.

The capital invested in the business is complete of the owner.

Its advantages are ease of formation and less legal formalities.

One of its major disadvantages is that the owner is liable for all the business debts.

In the eyes of law, the proprietor and the business are same.

Partnership

A Partnership is an agreement between two or more persons who come together for a common objective to earn profits. The owners of the partnership business are individually known as partners. Different people of various skills, knowledge, and talent come together to form a business. It is a relation between various partners to share profit as well as loss in the agreed ratio. When it comes to registration of a partnership, it is not mandatory but it is always advisable to register it. When two or more partners come together for a business they make a partnership deed which is a written agreement specifying names of each partner, address, capital invested by each partner and profit sharing ratio.

Features

Minimum members to form a partnership is 2, maximum members to form a partnership is 10 in the case of banking and 20 in other cases.

All the partners have unlimited liability.

The profit shared among partners are on the basis of the agreed ratio.

Registration of the partnership firm is not mandatory but it is always advisable to register it.

As explained above the partnership deed helps to solve various conflicts among the partners.

Mutual trust and faith should be there among the partners. All partners can act together or one partner can act on behalf of others.

Limited Liability Companies

Limited Liability Partnership:

This kind of business structure was basically formed to provide limited liability to its owners. It is a corporate body and has its own existence in the eyes of the law. The act of 2008 gives LLP the freedom to manage its own affairs. To become a partner of LLP doesn’t involve a huge lengthy complicated process. It is easy to form as well as easy to become a partner. In it, every partner has limited liability to the extent of capital contributed by them. They don’t have to suffer on behalf of its other partners.

Private Limited Company:

A Private Limited Company is that company which is owned privately by the individuals. It is more flexible and easy to form than a Public company because many provisions of the Companies’ Act 2013 are not applicable to this. It can be formed with just 2 members and 2 directors. But there is a restriction in the maximum number of its partners which is restricted to 200. The number of shareholders is limited to 50 only. A Private company cannot invite public to apply for its shares. This kind of company is more preferred by investors because they can buy/sell stakes easily.

Public Limited Company:

A Public Limited Company or Public company is that company which is owned by public or in which the public can subscribe. They can raise capital from the public directly through issues of shares. The minimum number of directors is 3 and the minimum number of shareholders is 7. There is no limit on the maximum number of shareholders. The shareholders have limited liability to the extent of the face value of its shares and the premium respectively.

One Person Company:

It is also symbolized by OPC. It has only one person as a member who will act in the capacity of a director as well as a shareholder. No one from outside India can incorporate OPC. It is only permitted to a resident of India to incorporate a One Person Company. It was basically introduced in India so that an individual person can also start their own venture. Under the Companies Act, it is classified as a Private Company. It’s features like perpetual succession and the separate legal entity is similar to a Private Company. It can be easily incorporated without many formalities and with just one person. The minimum paid up capital for OPC is one lakh rupees, as well as the maximum paid up capital, is fifty lakhs.

Non-Government Organization:

It stands for Non-Government Organization or Nonprofit Company. It is a citizen-based association that operates independently of the government, usually to deliver resources or serves some social or political purpose. These organizations are not meant for the purpose of profit but working selflessly for promoting a cause or development projects. These kinds of organizations come under section 8 of the Companies Act. At the end of the names of these organizations, it is not compulsory to use limited or private limited. There are many NGOs prevailing in India like CRY, MASTYLE CARE, which is working for the betterment of the people. Registration is compulsory with the Ministry.

Producer Company:

The concept of Producer Company in India was introduced to allow cooperatives to function as a corporate entity under the Ministry Of Corporate Affairs. The members have necessarily to be `primary producers,’ that is, persons engaged in an activity connected with, or related to, primary produce. Primary products are those products which are directly arising from agriculture such as fishery, horticulture, animal husbandry, bee raising and many others. For the registration of a Producer Company in India, the following members in any one of the order are required:

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Himanshu Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Himanshu is a CFA (US) & MBA (ISB). He has over 8+ years of corporate / consulting experience with top firms like McKinsey

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